Did The Banking Holiday of March 6th, 1933 End?

Proclamations 2039 and 2040: Transforming American Banking During the Great Depression

1. Introduction:
   1. The Great Depression of the 1930s was a period of economic turmoil and financial instability in the United States. In response to the severe challenges of the time, President Franklin D. Roosevelt issued Proclamations 2039 and 2040, which brought about significant changes in the American banking system. This article delves into the detailed transformations that occurred in banking both before and after the issuance of Proclamation 2039.
2. Proclamation 2039: The Great Bank Holiday of 1933
   1. Proclamation 2039, issued on March 6, 1933, was a watershed moment in the history of American banking. The proclamation was a response to the tumultuous economic conditions of the Great Depression. It declared a national emergency and established a four-day bank holiday, spanning from March 6 to March 9, 1933. Its objectives were twofold: to halt the export, hoarding, or earmarking of gold, silver coin, bullion, or currency, and to curb speculative activities in foreign exchange. Proclamation 2039 invoked the authority vested in the President by Section 5 (b) of the Act of October 6, 1917.
3. Section 5 (b) of the Act of October 6, 1917:
   1. “That the President may investigate, regulate, or prohibit, under such rules and regulations as he may prescribe, by means of licenses or otherwise, any transactions in foreign exchange and the export, hoarding, melting, or earmarkings of gold or silver coin or bullion or currency . . .”
   2. This section granted President Roosevelt expansive powers to investigate, regulate, and even prohibit various financial transactions. These encompassed transactions in foreign exchange and the export, hoarding, melting, or earmarking of precious metals and currency. The President could exercise these powers through the issuance of licenses or other regulatory mechanisms.
4. Before Proclamation 2039:
   1. **Fractional Reserve System:** Prior to Proclamation 2039, the United States operated under a fractional reserve system, which permitted banks to create money by lending a significant portion of deposited funds. This system was founded on the principle that only a fraction of deposited funds needed to be held as reserves.
   2. **Bank Runs and Failures:** The Great Depression had triggered a series of bank runs, with depositors racing to withdraw their funds due to diminished confidence in the stability of the banking system. This run on banks led to numerous bank failures and insolvencies.
   3. **Lack of Regulatory Safeguards:** The regulatory framework governing banking at the time was underdeveloped. Oversight was limited, and safeguards for depositors’ funds were insufficient. These conditions contributed to the instability in the banking sector.
5. After Proclamation 2039:
   1. **National Bank Holiday:** The immediate change brought about by Proclamation 2039 was the declaration of a national bank holiday. This decree, in effect from March 6 to March 9, 1933, led to the suspension of all banking transactions. Its primary goal was to prevent further withdrawals, hoarding of currency, and speculative activities.
   2. **Regulatory Reforms:** In response to the crisis of the Great Depression, the U.S. government introduced substantial regulatory reforms. The Banking Act of 1933, more commonly known as the Glass-Steagall Act, was enacted. This legislation introduced significant regulatory reforms, including the establishment of the Federal Deposit Insurance Corporation (FDIC) to provide deposit insurance, stricter banking regulations, and the separation of commercial and investment banking.
6. Proclamation 2040 continued the Bank Holiday indefinitely.
   1. Proclamation 2040, states the following; “Now, Therefore, I, Franklin D. Roosevelt, President of the United States of America, in view of such continuing national emergency and by virtue of the authority vested in me by Section 5 (b) of the Act of October 6, 1917 (40 Stat. L. 411), as amended by the Act of March 9, 1933, do hereby proclaim, order, direct and declare that all the terms and provisions of said Proclamation of March 6, 1933, and the regulations and orders issued thereunder are hereby continued in full force and effect until further proclamation by the President.”
   2. This gave Congress the ability to clarify all the different types of money. For example lets look at 18 USC 8 and 31 USC 5118.
      1. **Private Issued Bills of Exchange, Drafts, Notes, Trade Acceptances, and Banker’s Acceptances:**
         1. Private entities, including businesses, financial institutions, and individuals, often use bills of exchange, drafts, notes, trade acceptances, and banker’s acceptances as financial instruments in commercial and trade transactions. These instruments serve as promises to pay specified amounts at future dates and facilitate the smooth flow of commerce.
         2. **Application to 31 U.S.C. § 5118 (Legal Tender Status):**
         3.   – 31 U.S.C. § 5118 establishes the legal tender status of U.S. currency and coins for the payment of debts, taxes, and public charges within the United States. While this statute primarily pertains to U.S. currency and coins, it does not specifically address privately issued financial instruments, such as bills of exchange, drafts, notes, trade acceptances, and banker’s acceptances.
         4.   – These private financial instruments are typically governed by contract law and commercial practices rather than being considered legal tender under 31 U.S.C. § 5118. Their acceptance and use in transactions depend on the agreements between the parties involved and the applicable legal frameworks for commercial instruments.
      2. **Application to 18 U.S.C. § 8 (Counterfeiting and Related Offenses):**
         1.   – 18 U.S.C. § 8 focuses on the criminal aspects of counterfeiting and related offenses concerning U.S. currency and securities. It aims to deter and penalize counterfeiters who attempt to undermine the integrity of U.S. money.
         2.   – While 18 U.S.C. § 8 primarily addresses counterfeit U.S. currency, it is also relevant to the extent that privately issued bills of exchange, drafts, notes, trade acceptances, and banker’s acceptances could be subject to counterfeiting or fraudulent activities. If individuals or entities engage in counterfeiting or fraudulent actions related to these private financial instruments, they could be prosecuted under 18 U.S.C. § 8 for violating federal law.
         3. **In Summary:**
         4. Private issued bills of exchange, drafts, notes, trade acceptances, and banker’s acceptances are essential components of commercial transactions. Their use is governed by commercial and contract law and depends on the agreements between parties. They are not considered legal tender under 31 U.S.C. § 5118 but are subject to the criminal provisions of 18 U.S.C. § 8 if they are involved in counterfeiting or fraudulent activities. These instruments play a crucial role in facilitating commerce, and their validity and enforceability are determined by contract law and relevant commercial practices.
7. **Deposit Insurance:** The introduction of the FDIC marked a critical change in American banking. The FDIC provided deposit insurance, guaranteeing the safety of depositors’ funds up to a certain limit. This was a pivotal measure aimed at restoring public confidence in the banking system.
8. **Strengthened Oversight:** The regulatory landscape was enhanced with more stringent oversight and supervision of banks. The goal was to prevent excessive risk-taking and speculative activities that had contributed to the financial crisis.
9. **Stabilization of Banking:** The actions taken through Proclamation 2039 and the subsequent regulatory reforms sought to stabilize the banking system, rebuild public trust, and prevent financial panics.
10. In summary, the proclamation and the regulatory reforms that followed it fundamentally changed the way banks operated in the United States. The fractional reserve system, which had contributed to instability and bank runs, was addressed through deposit insurance and stricter regulations. These measures were aimed at ensuring the safety and stability of the banking system and restoring public confidence in the midst of the Great Depression. The changes brought about by Proclamation 2039 and the subsequent Banking Act of 1933 transformed American banking, creating a more resilient and secure financial system for the future.